Britain's fifth biggest mortgage provider, the "bad bank" managing the toxic assets of collapsed UK lender Northern Rock, said it expects pressure to build on borrowers this year due to higher taxes, inflation and job losses.
UK Asset Resolution (UKAR), which is running down the bad loans that were held by Northern Rock and other failed lender Bradford & Bingley, said it had repaid another £1 billion (€1.1 billion) of its loan from Britain as first-half underlying profit almost doubled from a year ago to £496 million.
Richard Banks, UKAR CEO, said he expects to repay the majority of its £47.7 billion loan from the government over the next decade, with repayments accelerating as home loans are repaid.
The jump in profits was due to a sharp fall in bad loans for both Northern Rock and B&B customers. But UKAR warned that trend may reverse later in the year.
"It feels a very uncomfortable and uncertain economic environment," Mr Banks told reporters on a conference call, citing higher fuel and food prices and the threat of unemployment.
"We expect more customers to get into difficulties in the remainder of 2011 and this may result in more arrears and repossessions," he said.
UKAR provides over £80 billion of loans to 850,000 customers.
It runs the bad banks of Northern Rock (NRAM) and B&B, but each remains separate and they have individual balance sheets.
NRAM repaid £1 billion to the government to cut its loan from the state to £20.7 billion. B&B still owes £27 billion, and has agreed to pay the Treasury £124 million higher interest on that this year.
Northern Rock was nationalised three years ago after the first run on a British bank for over a century. It was subsequently split in two, UKAR taking on most of its mortgage portfolio with NRAM, and a "good bank" set up to manage existing savings accounts and win new business. That is now in the process of being sold.
Loans in the bad bank have performed better than expected, and the bad loans charge for the two lenders fell to £216 million in the first half from £439 million a year earlier.
The number of loans in arrears by at least three months for NRAM rose to 7.4 per cent at the end of June from 6.6 per cent at end-2010. Arrears at B&B fell to 3.6 per cent from 4.1 per cent.
Reuters
